Woolworth undertakes accounting probe

March 31, 1994|By New York Times News Service

NEW YORK -- In an announcement jarringly at odds with a corporate image straight out of a Norman Rockwell painting, the Woolworth Corp. said yesterday that its board had appointed a committee of outside directors to investigate allegations of accounting irregularities.

The discount retailer also said it would restate its interim financial results for the fiscal year that ended Jan. 29 and might have to restate interim financial results for the previous fiscal year as well. It said it did not expect the adjustments to change full-year results for those years, but did not explain why.

"While the company cannot at this time evaluate the accuracy of the allegations, it believes that nothing in the allegations will materially adversely affect the company's financial position," Woolworth said in a terse statement.

Stunned analysts were worried that the developments might delay the continued turnaround of the company.

Woolworth's stock dropped $1, to close at $17 a share, yesterday in heavy trading on the New York Stock Exchange.

The company's statement did not indicate who had raised the allegations of accounting improprieties. It said the reported irregularities might include the accounting procedures that were forcing the company to restate interim financial results for the year that ended Jan. 29.

Howard M. Schilit, an accounting professor at American University and author of "Financial Shenanigans," a guide to common accounting gimmicks, said the company's statement implied that it might have overstated the value of its inventory.

Some Wall Street analysts suggested that the restructuring efforts Woolworth had undertaken, including marking down inventory, could be to blame for its errors in calculating its gross profit margin.

"They've done a lot of things this past year that could inadvertently cause an error," said Monroe H. Greenstein, a retail analyst at Lazard Freres.

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